A CLOUD HAS formed in the living room. A legal, political, economic and rhetorical cloud that billows out from the neighborhood of the TV set to surround everyone--Mom, Dad and the kids too--in blinding confusion.

And the source of the cloud? It is the household's latest electronic wonder: a Sony Betamax. Generic name: videocassette recorder (VCR for short). Related brands: RCA, Sanyo, Zenith, Sears, Roebuck & Co., etc. Country of manufacture: Japan. Country of resulting legal-political mist: United States of America.

The Betamax and its kin have been with us for seven years now, and we are in the sixth year of Universal v. Sony, a mighty corporate fracas arising from the question of whether the makers, sellers and owners of VCRs are systematically stealing copyrighted works from the public airwaves. With the settlement of the AT&T and IBM antitrust suits, Universal v. Sony has emerged as the preeminent communications squabble of the day, and also--to judge by the importance of the contending parties, the relevance to daily life, and the number of dollars and yen riding on the result--one of the biggest knock-down, drag-out legal wars in American history.

Calling a lawsuit a war may sound excessive, but the Universal-Sony dispute has many of the trademarks of a military conflict, including intense nationalistic fervor. Much of that has come from Jack Valenti, the silver-haired, silver-tongued, Napoleon-sized commander of the Motion Picture Association of America. Valenti scarcely ever refers to the makers of VCRs by any name other than "the Japanese." They, he charges, are getting a free ride on the backs of American artists and filmmakers. "American film and television programming dominate the world," Valenti told a conference of lawyers and communications experts who met in Washington last weekend to argue about the Betamax case. "The American movie is the one thing the Japanese with all their skills cannot duplicate or clone. They can't make pictures like we make them."

Last October, a federal appeals court made home videotaping officially illegal and labeled the Betamax a tool of copyright infringement and Sony a "contributory infringer." If that decision stands, a lower court (which ruled the other way) will be expected to work out a remedy, presumably for future as well as past abuses. But first, sometime between now and October, the Supreme Court must decide whether to review the case. And Congress is already grappling with half a dozen bills designed to settle the issues one way or another.

The battle lines have formed over one possible solution: a royalty that would be levied on the sale of all VCRs and blank tapes (Valenti has floated the sums of $50 per VCR and $1 a tape). The film and TV production industry and its allied unions and guilds are in favor, while the makers and sellers of VCRs (plus an assortment of consumer groups) are against.

The royalty forces include such regal names as Charlton Heston, Clint Eastwood and Beverly Sills--all of whom have appeared before congressional committees in recent weeks. The anti-royalty forces, meanwhile, have assembled an astonishingly well-connected legal team that includes one former White House adviser (Stuart Eisenstadt), one widow of a Supreme Court justice (Cathy Douglas) and one son of the speaker of the House (Christopher "Kip" O'Neill).

Valenti, an adventurous man with a metaphor, compares VCRs to "millions of little tapeworms" eating away at the American movie industry. If the process goes on unimpeded, he cautions, the United States will become an "entertainment desert" because its creative artists won't have the necessary incentive to create. "Creative property is private property, like land or your home or your car, and no one should use that property without compensating the owner and asking the owner and getting the permission of the owner," Valenti told a Senate Judiciary Committee hearing on the issue. "Just because you're a creative man doesn't make your property any less valuable or any less real--just because it sprang from your mind instead of from your hands."

His counterpart in the Sony hierarchy is former FCC chairman Charles M. Ferris, a stocky, bespectacled Carter administration veteran with a thick head of prematurely white hair. Valenti and Ferris have made a series of joint appearances lately, growing ever more familiar with each other's arguments and, in the process, tending to reaffirm the old maxim about familiarity and contempt.

Just as Valenti calls the enemy "the Japanese," Ferris calls it "Hollywood." Hollywood, he says, is already compensated for the home-taping audience (the Nielsen and Arbitron ratings both include VCR use in their samplings). So the royalty idea, Ferris says, is a sneaky way of charging twice for the same thing--namely, the privilege of watching a program on TV. On one of the recent occasions when he made this point, Valenti became visibly aggrieved and complained of anti-Hollywood "racism." He said he was tired of hearing Hollywood referred to "as if it was something dirty and squalid." Which reminded him of the fact that "Japanese machines do not create entertainment. The American motion picture industry does."

Emotions cooled, however, when Ferris reaffirmed that Hollywood is "a place of great affection" for him, adding, "I'm sorry that you think it's racist when I talk of Hollywood, Jack."

Sometimes, too, the participants turn to the hard legal, economic and practical issues that make the Betamax case--at least for those not directly involved--an extraordinarily complex and challenging intellectual dilemma. Those hard issues include:

* How are VCRs, generally speaking, used?

Ferris and his colleagues argue that when a VCR owner tapes a TV show or a movie off the airwaves, he is not really copying something, except in the most technical sense, but simply "time-shifting"--i.e., recording a program shown at an inconvenient hour for later viewing. "Should the American consumer be taxed these amounts," Ferris asks, "for the right to receive and to view in the privacy of their own home television programs that were intended for their viewing?" (No, is his answer.)

Considering the intensity with which advertisers, broadcasters and others study TV-watching habits, the information on VCR use is surprisingly sketchy. Americans own upward of 3.5 million VCRs, of which some 1.5 million were purchased in the final holiday months of 1981 alone. Sales of blank videocassettes have also been booming, with about 30 million sold last year--a statistic cited by the royalty forces as evidence of widespread "librarying," since only a few tapes are needed to "time-shift."

"Librarying"--the vague new verb that refers to the long-term accumulation of homemade tapes--is seen as harmful to the copyright holders for a number of reasons: because viewers, it is assumed, will avoid commercials as much as possible, either by blanking them out in recording or by rushing through them with the aid of fast-forward devices; because even if they do watch the commercials, it may be too late for the sponsors' purposes (as with a holiday special advertised on the eve of the holiday); because they will rewatch old tapes instead of commercially sponsored rebroadcasts of the same fare; and because they will use their own tapes in preference to the prerecorded ones available for sale or rental.

But all these assumptions have been questioned. Although 86.8 percent of the VCR owners in one study reported that they "skip commercials or erase them," they did not say how often they do this, and no one has tried to compare those practices with such traditional commercial-skipping devices as the quick trip to the kitchen.

Ultimately, the argument comes down to inference and anecdote. Except for a few "video nuts," says Ferris, VCR owners have no motivation to "library" movies aired on TV because, for only a few dollars, they can rent prerecorded, commercial-free and unedited cassettes of far higher visual quality. But the royalty advocates counter by citing the popularity of magazines like Video Review, which gives its readers a monthly list of programs they might wish to tape.

There is also plenty of debate over the number of VCR owners who use their machines--or will do so in the future--for home movies and other purposes unrelated to the concerns of Universal v. Sony. But no one has taken serious issue with the producers' claim that the ability to tape copyrighted programs is a major factor in the VCR's appeal.

* Does home videotaping actually hurt the TV and film industry?

The District Court judge who first heard Universal v. Sony in mid-1979 wrote that because "the prediction of harm is based on so many assumptions and on a system of marketing which is rapidly changing, this court is hesitant to identify 'probable effects' of home-use copying." Besides, Judge Warren J. Ferguson argued, "plaintiffs have marketing alternatives at hand to recoup some of that predicted loss. They stand ready to make their product available in cassettes and compete with the VCR industry. They have proven resilient to change in market practices arising from other technological inventions, e.g. cable television, pay television."

Sony counsel Robert Bruce goes further, insisting that VCRs, in the end, expand and diversify the TV audience, which benefits producers as much as anyone. "People are not taking a long-term view about what's in the best interests of the creative community," he says, "but since when are Washington lobbyists expected to be farsighted about their industries?"

But economic analyst and former presidential adviser Alan Greenspan, retained by the record industry to argue its parallel grievance against audio recorders and audio taping, suggests that perceptions may be as harmful as actual practices. If advertisers don't have confidence that VCR owners will watch commercials, Greenspan says, the value of commercial time will decline accordingly.

There have been no claims or estimates of general harm already suffered, but here again, there is an abundance of anecdotal evidence. The last time "Gone With the Wind" was aired, there was a massive rush to buy blank videocassettes, according to MPAA Vice President Fritz Attaway. Home taping on such a scale has to hurt the prerecorded videocassette market, Attaway says, and that hurts the movie industy as a whole because "sales of prerecorded cassettes are becoming necessary to the decision to make a movie in the first place."

* Regardless of injury, does home videotaping violate the law?

The immediate answer, courtesy of California's 9th Circuit, is yes. But all parties to the dispute agree that existing copyright law--up to and including the Copyright Act of 1976--is badly equipped to deal with new technologies (not only VCRs but photocopiers, home computers and satellite-TV receiving dishes, etc.). Traditional copyright concepts--for example, "fair use," which, among other things, allows critics to quote copyrighted works without charge or permission--have already been stretched to the limit.

Valenti and Co. are acutely worried about the possibility that Congress, in this election year, will be eager to undo an unpopular court decision, but equally eager to defer action (pending further proof of harm, perhaps) on what has been called, albeit loosely, a "tax." The fear is that, harm or no harm, VCR owners could develop into a powerful constituency whose economic interests might become as unchallengeable as, say, those of Social Security recipients.

To head off that danger, the anti-Betamax alliance has procured, from Lawrence H. Tribe, professor of constitutional law at Harvard University, a lengthy treatise on the constitutional underpinnings of copyright protection. If Congress tries to classify home videotaping as "fair use," Tribe warns, it risks a severe judicial rap on the knuckles for violating the Fifth Amendment's clause about taking property without due process and just compensation.

Rarely have two federal courts viewed the same case more differently than the District and appeals courts in Universal v. Sony, and some experts question both decisions. Peter Jaszi, a law professor and copyright specialist at American University, believes the District Court may have erred in asking Universal to show harm rather than asking Sony to show the absence of harm. But the appeals court also may have erred, Jaszi says, by discounting a public or First Amendment interest in the right to copy some TV programs for "information exchange" purposes. Hence, he suggests, certain acts of home taping could be acceptable while other acts could be unacceptable.

* What about home audio-taping?

"I'm scared and so is my industry," says Stanley Gortikov, president of the Recording Industry Association of America. The record business has been on a downward binge since 1979, and while cause-and-effect is hard to demonstrate, that trend has closely paralleled a startling rise in the number of tape recorders in American homes. A Warner Research study of home audio-tapers found that they copied the equivalent of 455 million record albums in 1981, and the reason most often cited was, "So I wouldn't have to buy it."

As a result, the music and recording worlds have appealed to Congress for help, and Sen. Charles McC. Mathias (R-Md.) and Rep. Don Edwards (D-Calif.) have included an audio royalty in their respective Senate and House VCR measures.

* Who should control videotape rental?

A little-noticed section of the two royalty bills would abolish the first-sale doctrine for precorded videocassettes. This is the doctrine that allows anyone who buys a copy of a work to sell, rent or lend it to anyone else. Thousands of independent dealers have gone into the videocassette rental business on the basis of the first-sale doctrine, choosing, in many cases, to rent out prerecorded cassettes of movies intended (by Hollywood) for outright sale. The independent video dealers argue that repeal of the first-sale doctrine will lead to higher rental prices, and that Congress is being asked "to come in and rectify a bad marketing decision," as Ferris puts it.

"A lot of people," says Joe Waz, deputy director of the National Citizens Committee for Broadcasting (a branch of the Nader Organization), "have suggested that this is reflective of the greed of the producing industry, and it gets them a bad press."

* Will a royalty be fair and enforceable?

The Mathias and Edwards measures authorize a royalty, but leave both the amount and the collection and distribution machinery to a body called the Copyright Tribunal, created in 1976 to oversee a similar arrangement for the copyright problems of jukeboxes and cable TV systems. Some predict that VCR-related problems will be far more difficult, and that the Copyright Tribunal--"a runty organization with no staff and no subpoena power," in Waz's words--will need to be vastly expanded.

Others, including former FCC chairman Ferris, cite this need for extra government bureaucracy as an argument against the royalty idea itself. "The market works," says Ferris. "I submit that we shouldn't gum up the marketplace."

Another objection is that, inevitably, some owners of VCRs (for example, companies using them for training purposes) and some owners of audio recorders (for example, journalists using them for interviews) will be unfairly penalized by a royalty. But David Ladd, the registrar of copyright, argues that a fee on videocassettes is "an elegant and precise" means of distinguishing between classes of users, since several tapes are enough for time-shifting, and "only to the extent that the home taper desires to library will he require the additional tapes."

Waz and the NCCB take the position that Congress, without prejudging the question of harm, should authorize the Copyright Tribunal or a similarly nonpolitical agency to study the matter and set a royalty only if deemed necessary. "If the loss to producers is demonstrably so substantial as to result in the withholding of product from the marketplace," Waz reasons, "consumers would be harmed. Therefore, some suitable compensation scheme may be both equitable and in the consumer's interest in the long run." But he envisions a much smaller royalty than Valenti has proposed, and perhaps one (like that already in effect in Austria) applying only to blank tapes rather than tapes and machines.

Ultimately, creators and VCR makers have a common stake in the ongoing flow of movies and TV programs, so they may not have to be enemies for life. Despite all the "irrelevancies and charges and counter-charges that have been flung back and forth on both sides," says Waz, "I really don't think they're that far apart." There are those who think the long-term benefits of VCRs--for example, the availability of prerecorded cassettes and the possibility of using the "graveyard hours" of the early morning to broadcast specialized programs expressly for home taping--will prove more important than the current disagreement over their status.

For the moment, however, there is unanimity only on a single narrow point. No one, it appears, wants to see the home videotaper prosecuted for his behavior. So there is little chance that life will imitate the various newspaper cartoons that followed last fall's anti-Betamax decision--cartoons that depicted, among other things, teams of "Video Police" invading the nation's living rooms to put handcuffs on entire VCR-owning households.

Only AU's Peter Jaszi has expressed the slightest regret over this failure to create a national Video Police force. "It's too bad," he says. "I wanted to see the uniform."